What is a Non-Convertible Debenture (NCD)?
A debenture is a type of bond issued by corporates and governments to raise long-term capital. They can be secured (backed by assets of the issuing institution) or unsecured (backed by the creditworthiness and reputation of the issuing institution). There are two types of debenture- Convertible and Non-Convertible Debentures.
Non-Convertible Debentures (NCD) are fixed-income debt instruments that cannot be converted into equity/shares. They offer relatively higher interest returns than convertible debentures.
Benefits of NCDs:
- To compensate for the drawback of non-convertibility, lenders are usually given a higher rate of return as compared to convertible debentures.
- High liquidity since they are traded on the stock exchanges.
- Tax exemptions at source.
- Safety; since they are issued by companies that have a good credit rating as per RBI norms.